Dubbing the Angara bill as a derailed TRAIN, civil society advocates led by Action for Economic Reforms (AER) urge the members of the Senate to amend the Angara bill in the plenary deliberations and focus on keeping the original proposals of the Department of Finance (DOF) like the higher income tax relief for the working classes; a higher marginal tax rate for the richest one percent; fuel and auto taxes and the removal of VAT exemptions that will generate significant revenue not only to finance education, health and public transportation but also to ensure the funds for the cash transfers for the poor and near poor.

AER criticizes the attempt of Sen. Sonny Angara, Chair of the Senate Committee on Ways and Means to present his proposals as pro-poor with the negligible increase in fuel excise tax in the first year. The group says the lower fuel tax will mean less revenue, thus restricting spending for the poor, and will only benefit the richest 10 percent who consume more than half of total fuel production.

“The reduced rates on fuel tax will mean a slide in targeted revenues from PhP70 billion to PhP40 billion. The Angara bill will limit the unconditional cash transfer to ten million households only, excluding around two million poor households in the 5th income decile, who should be also receiving the transfer,” said Jo-Ann Diosana, an AER economist.

Angara’s Senate Bill 1592 also lowered the non-taxable income to only PhP150,000 from the DOF’s initial proposal of PhP250,000 per year. On the order hand, the marginal tax rate for the richest individuals is cut from the proposed 35 percent rate to 32 percent.

“His income tax proposal will translate into a higher burden for low-income earners in the informal sector, like vendors and service workers. This clearly shows the bias of the bill towards the richest Filipino taxpayers while the low-wage workers and marginal income earners are denied the relief,” Diosana added.

Jenina Joy Chavez, an executive officer of AER, also expresses alarm over the retention of many VAT exemptions and extension of zero-rating to some private interests.

“The generous VAT exemptions can predict what will happen to the rationalization of fiscal incentives—it will likely be watered down, given Angara’s accommodation with respect to VAT exemptions. It shows the bias of senators like Angara to protect vested interests,” said Chavez.

“It is necessary to clean up the VAT system and plug tax leakage by lifting these unnecessary exemptions so that more revenues can be raised for pro-poor spending. Unfortunately, Senator Angara had chosen to kowtow to the interests of a few rather than look after the welfare of the majority,” Chavez said.
In an attempt to augment the revenue targets from TRAIN, the bill includes new taxes from cosmetic surgeries, coal, and dividends. AER said these new measures were inserted in TRAIN even when their revenue potential, economic impact, and, more importantly, their impact on the people’s health and livelihood have not been studied.

Health advocates and medical groups also proposed to Angara to include the tobacco tax increase in TRAIN, which is expected to increase government revenues by P40 billion to P60 billion. But this fell on deaf ears. (END)

“Why use plastic tax to augment revenues from TRAIN when it has not been proven to be a steady source of revenue that will fund the promised spending of this administration, particularly for health? We know that the government needs to reform several tax systems including those in TRAIN but these should be based on merits and evidence.”

This was the statement of health groups belonging to the Sin Tax Coalition today as deliberations for package 1 of tax reforms continue in the Senate led by the Committee on Ways and Means.

The group said they had a dialogue with Senator Sonny Angara, Chair of the Committee on Ways and Means last week to ask him to include tobacco tax in the TRAIN, to complement revenues that will be raised for health and other social protection measures for the poor.

“Tobacco tax will convert TRAIN into a tax reform that is overwhelmingly pro-poor and pro-health. For example, it can provide funds to hire and train more healthcare workers so that universal healthcare can finally reach the poor, like how it financed the PhilHealth coverage of the poor and the senior citizens. Tobacco tax has also been proven to have direct health benefits, with the country seeing four million less smokers since the sin tax law was passed in 2012,” explained Dr. Antonio Dans, University of the Philippines College of Medicine professor and one of the convenors of the Sin Tax Coalition.

Jo-Ann Diosana, senior economist of fiscal policy reform group, Action for Economic Reforms said plastic tax will not be able to sustain the needed revenues, compared to the excise taxes on tobacco, fuel and automobile in TRAIN.

“Plastic tax should not be used to dilute the package of reforms under TRAIN. It will never match the revenue that reforms in the value added tax and fuel tax can bring to fund the much needed programs in infrastructure, health, education, and social protection, including the cash transfers that will benefit the poor and the near poor,” said Diosana.

Dans said their group does not question the Senators’ efforts to be more creative in thinking of other measures to raise revenues in addition to fuel tax but he said he cannot understand why tobacco tax, which is a more urgent measure, is not included in a bill whose effect on the poor is strongly debated. “Every year we wait after 2017, we will see 200,000 new smokers. The impact of the 2012 Sin Tax Law is rapidly being eroded so we need to do something now,” Dans added.

“The Senators have the obligation to raise revenues for the promised reforms of this administration. The decrease in personal income tax will result in greater spending capacity for income earners and help boost the economy’s growth. However, we know that the poor and the near poor need also more cash to help them cope with the marginal increase in prices of goods and services as a result of the passage of TRAIN. Plastic tax will not provide for that,” explained Diosana. (END)

PhilHealth’s reserve fund is now less than a year’s worth of benefit payments.

From a conservative fund manager, whose past reserves averaged at four times its annual benefit payments, it has finally become an institution that generously pays for the health needs of the Filipino people.

While the said shift is definitely good news, some early red flags threaten PhilHealth’s financial sustainability and effectiveness in providing financial risk protection. If not addressed immediately, this may spell disaster not only for PhilHealth but also for the entire health care system.

Benefits skewed towards catastrophic and inpatient services

Topping the list is the lack of a comprehensive benefit package on preventive and primary care.

Since 2012, PhilHealth has been introducing new catastrophic and inpatient benefit packages every year, covering a whole range of cases including treatment of cancers, kidney transplant, coronary artery bypass graft surgery, orthopedic implants, and hemodialysis and peritoneal dialysis, among others. Yet, the primary care benefit (PCB) package that it launched in early 2012, which was already an improved version of the old outpatient benefit package, allocated a measly budget of P500 per family and covered only a few targeted sectors.

There is news that an improved PCB with a higher budget of P1,800 per family, which will cover not only consultations and necessary laboratory exams but also medicines for selected cases, including maintenance drugs for chronic conditions such as diabetes, hypertension and high cholesterol, will be re-introduced in 2016. Still, the new PCB package will only be available to indigents and sponsored members and its coverage remains to be limited to a few primary conditions.

In the medium to long term, PhilHealth’s very limited coverage of outpatient and/or preventive care will be pushing Filipinos to seek care only when their illness or condition has already worsened. As a result, there will be an exponential increase in the number of claims for catastrophic benefit packages and a steep rise in PhilHealth’s benefit payments. What’s worse, the increasing payments may not also necessarily translate to saving lives and improving the quality of life.

Fraud and gaming as symptoms of lack of a monitoring system and poorly designed packages

Then there’s a whole gamut of fraudulent acts and gaming of providers and even patients that is reflective of the lack of a monitoring system. The reality is that PhilHealth has currently no technological capacities to detect real-time abnormalities in claims patterns. That is why the recently suspected bogus claims of some eye centers were only tackled by the agency in the middle of 2015, several months after the claims were made in 2014.

Yet, the cataract package is just the tip of the iceberg since it is only one of many benefit packages that are vulnerable to fraud and gaming. The monitoring task will even become more challenging in the coming years as PhilHealth continues to introduce more benefit packages.

Other known schemes of gaming the system involve health providers that artificially increase the prices of services or professional fees instead of deducting PhilHealth benefits from the true cost of care. There are also those that are committed by patients, such as opting for confinement to take advantage of inpatient benefits even if outpatient care would suffice. But unlike the cataract scam, these schemes are more a result of poorly-designed packages and implementation policies that incentivize adverse behavior.

All of these create inefficiencies and leakages that contribute to endangering the financial viability of PhilHealth’s program. They slowly eat up on the limited resources that we have for health and certainly prevent some needy patients from receiving essential health services. Even more important than the financial losses and opportunity costs of paying for bogus services are the health harms that the fraudulent acts bring, as in the case of the cataract scam.

The solution: devote more resources for primary care

So how can PhilHealth make its program more financially sustainable and effective in protecting Filipinos from financial risks, and, at the same time, significantly contribute to improving people’s quality of life? It should start devoting more resources to keeping our citizens healthy.

Immediately, the PCB package should be made universal and available to all PhilHealth members. This will entail increasing PhilHealth premiums in the next two or three years, but a national subsidy of P30 billion to provide PCB to all PhilHealth members is initially necessary to gain public support for future premium increases and strengthen social solidarity. Anyhow, financing can be easily sourced from PhilHealth’s P100-billion reserve fund and government’s increased fiscal space.

That’s not to say that the PCB package is already perfect.

But it is a good starting point to channel more resources for preventive services and evolve the country’s health care system towards a more integrated system, that is the primary care system. It also possesses an essential feature, namely the use of electronic medical records as a requirement for accreditation of providers, which can facilitate real-time generation of data to aid monitoring and package development.

The PCB package must continually evolve to ensure that it creates the proper incentives for providers to deliver the highest quality of care at the most affordable cost. It must also shape patients’ behavior so that they are encouraged to take good care of their health and demand for appropriate care that is just sufficient (not too little and not too much).

One adjustment that can be made in the short-term is to disallow reimbursements if patients go directly to subspecialists without being examined by a primary care provider, so that primary care providers become gatekeepers to the complex health care system.

Doing so will not only minimize fraud and leakage but also ensure that only the most cost-effective services will be accessible to patients.

Eventually, through the constant adjustment and refinement of the PCB package, PhilHealth will be able to strengthen the primary care system. As many studies have already pointed out, strong primary care systems are associated with decreased health care spending, higher patient satisfaction, and better health outcomes leading to more equitable and accessible health care.

In the long run, PhilHealth may develop more interventions that are closely linked to addressing the social determinants of health. Simultaneously, PhilHealth’s performance indicators must change to become more reflective of health outcomes and the quality of life.

For it is only when PhilHealth, together with the entire health care system, is able to take good care of the health of the Filipinos that it can also be true to its purpose and vision — “Bawat Pilipino, Miyembro; Bawat Miyembro, Protektado; Kalusugan Natin, Sigurado.”

Jo-Ann Latuja-DiosanA is a Senior Economist at Action for Economic Reforms.

By the end of the Aquino administration, the Department of Health (DoH) would already have a budget almost five times more than it began to receive at the start of President Benigno S. C. Aquino III’s term, should the proposed P122.7-billion health budget be approved this year. This is a record high in the history of the DoH budget.

At a glance, the steep rise in the DoH budget is a testament to the administration’s commitment to advance Universal Health Care (UHC), which envisions a health system that leaves no one behind. It is also a strong indicator that the Sin Tax Law is working, given that bulk of the law’s incremental revenues are earmarked for UHC, and that the substantial increase happened soon after its passage, from P53.2 billion in 2013 to P83.7 billion in 2014. The entire health community, both at the local and international level, recognize the budget increase as an important milestone in health financing.

WITH MORE MONEY COMES GREATER RESPONSIBILITY
Indeed, the Philippines has been so far successful in securing resources for health, yet the more difficult task of ensuring that resources actually translate to health outcomes still remains. Even the latest figures for some of the most basic health-specific Millennium Development Goals (MDGs), which culminates this year, such as maternal mortality and incidence of HIV/AIDS, are still far below the targets despite the seemingly MDG-focused programs of DoH. Add to that the double burden of non-communicable and communicable diseases, which has only been slightly tackled by the Department, and you get a grim picture of the challenges ahead.

Perhaps the most obvious reason why the impact on health outcomes is not as dramatic as the spike in the health budget is the huge mismatch between DoH programs and the primary causes of mortality and morbidity. The top three causes of deaths in the Philippines, namely diseases of the heart, diseases of the vascular system, and malignant neoplasms, have been the same for more than a decade and are continuously increasing the number of deaths every year, yet none of DoH’s well-funded programs deals with the prevention of these conditions. While most of the top 10 causes of mortality and morbidity may only be completely addressed by involving other agencies and employing a whole-of-government approach, it is still imperative that DoH leads in setting this health agenda.

KEY STRATEGIC THRUSTS AND ITS PERFORMANCE INDICATORS
Consequentially, there is also a gap between the Department’s performance indicators, and the service delivery and health outcomes that really matter. We can start by looking at “financial risk protection improved,” a key strategic thrust of the Aquino Health Agenda that has been getting a lion’s share of the DoH budget since 2012. Here, coverage rate and benefit payments have been the primary measures of progress whereas the measures that really matter should have been the amount of out-of-pocket expense and the number of people who were not able to access needed quality health services due to financial hardship.

The next thrust — access to quality health care services, is also masked with indicators that do not necessarily improve access to health care. For example, under the health facilities enhancement program, the most common performance measures such as the number of facilities established, upgraded, and accredited, are useless if they do not inform about their actual catchment areas — the number, socio-demographic profiles, and health conditions of the people they serve. The number of facilities also need to be accompanied by the number and types of health providers who will render service in each facility, for what good will a facility do in the absence of the health care workforce.

The third thrust, which aims to address the MDGs on health, specifically maternal health, child health and HIV/AIDS, may have the most number of indicators that are more directly linked with health outcomes, but even so, some of its targets still need to be refined. For instance, in reducing maternal mortality, the single most effective intervention is to ensure that deliveries are attended by skilled health personnel, yet, this is not included in the official performance measures for maternal mortality. Instead, what has been adopted as a key measure is the proportion of facility-based deliveries or pregnant women delivering in facilities.

Moreover, although some of the MDG indicators used are reflective of important health outcomes, what is being measured barely scratches the surface. Even the indicators of access to quality health care services which touch on communicable and non-communicable diseases, reflect a hodgepodge of data.

While some are actual health outcomes — malaria or filaria-free provinces or deaths due to malaria, others are outputs or interventions completed — number of senior citizens immunized against influenza, provinces with noncommunicable diseases registries, or cessation clinics established, or are clumped together such as in HIV/AIDS cases diagnosed and given treatment. Furthermore, critical health outcomes remain missing, such as access to skilled health personnel, despite the inclusion of annual targets on the number of health human resource deployed.

All of the indicators measured by the DoH are important. But the missing data, the uneven, intermittent, and selective analyses, and failure to track progress gravely affects the understanding of the complete health picture across time.

MISSED MEASURES, LOST OPPORTUNITIES
To the extent that DoH’s selection of its measures and targets is a function of its capacity to collect and produce various types of data, its failure to pay attention to the metrics that matter may partially be a result of the existing poor health information system. The obvious solution then would be to invest in a comprehensive health information system and to boost DoH’s information management capacities. After all, the development of a national health information system is crucial to effectively aid policy formulation, which is why it is also one of the six building blocks to achieve UHC. Particularly, DoH needs to generate new data that will capture alcohol prevalence, and sexual and reproductive health outcomes, among others.

Nevertheless, even with the available limited data, much can still be done to sharpen DoH’s policy formulation. The underutilization of the DoH budget is definitely a huge disappointment given that many targets have yet to be achieved, but it also provides room to maneuver towards more evidence-based planning. An urgent task for the Department is to complete the Evidence-based Human Resources for Health Master Plan, which provides the blueprint for determining, attaining, and retaining the standard number of skilled health professionals and other allied health professionals across the country, as specified in the Implementing Rules and Regulations of the Sin Tax Law. The mapping and connection of the service delivery network, which includes the geotagging of health facilities across the country, can also be achieved before 2015 ends. Disaggregated data on the utilization of PhilHealth benefits, by package, income group, sector, type of facility, and geopolitical divisions, should already be generated and released to effectively guide the development of packages.

The legacy of the MDGs is that what is measured counts, as it shapes policy and determines where resources will go. As Congress deliberates the 2016 DoH budget, may they ensure that the measures that really matter are addressed. Ultimately, health outcomes that are missed, deliberately or not, means lives lost.

Jo-Ann Latuja-Diosana is a Senior Economist at Action for Economic Reforms. May-i Lactao-Fabros is the Young Women Collective Coordinator of WomanHealth Philippines. Action for Economic Reforms and WomanHealth Philippines are members of the Alternative Budget Initiative — Health Cluster, which proposes alternative budget recommendations to the Department of Health annually.

Unreliability of the study

IF there’s anything to learn from the latest Oxford Economics (OE) study on illicit tobacco trade released recently in Hong Kong to a selective group of mediamen, it is its unreliability as a reference for taxation as it drew a sharp retort from no less than Internal Revenue Commissioner Kim S. Jacinto-Henares.

Henares branded as biased and inaccurate the study that the government lost last year more than P22 billion in revenues due to rampant consumption of untaxed cigarettes.

She cited a World Bank study which showed that only 5 percent, not 19 percent as claimed by OE, of the total cigarette consumption yearly was sourced from the illicit cigarette trade.

Henares said the study made by OE is biased, because it was commissioned by a big cigarette producer who strongly opposed the passage of the “sin” tax law.

Although the revenue chief did not elaborate to avoid being dragged into a trade war between the multinational company and its small competitor, Mighty Corp., which the former has been repeatedly suspecting of engaging in trade malpractices to increase its market share and profits.

What prompted Henares to react quickly was that this is not the first time that OE came out with such an unreliable study, especially at a time when revenue collections from the sin-tax law tremendously increased over the past few months and in the previous years, and, thus, debunked advocates of illicit trade.

There were three other highly questionable studies and reports on illicit trade that were also discredited not only by Henares but by the World Bank, World Health Organization (WHO) and the South East Asia Tobacco Control Alliance, equally reliable authorities on tobacco taxation and illicit trade.

One, is the AC Nielsen Report, which “estimates” illicit cigarettes using a questionable survey method. To date, nobody, except the multinational company, has seen an actual copy of the study. No government agency has been furnished with one, as well.

Two, is the Asia-11 Illicit Tobacco Indicator that you can throw away after reading the disclaimer that says:

“ITIC [International Tax and Investment Center] and OE prepared the report in accordance with specific terms of reference agreed between Philip Morris Asia Ltd., an affiliate of Philip Morris International Inc. [PMI] and ITIC. PMI has provided financial support for the report. However, ITIC and OE assume all responsibility for the report’s analysis, findings and conclusions.

“The report is to serve as a public policy resource pursuant to ITIC’s mission. Nevertheless, should any party choose to rely on the report, they do so at their own risk. ITIC and OE will not accept any responsibility or liability to any claim in respect of the report.”

Three, is the Senate Tax Study-Research Office report that was obviously twisted by the PR guys of the multinational firm to its favor. The report itself offers the recommendations that the data therein is inconclusive and subject to further analysis whether there are taxes and duties leakages.

The Southeast Asia Tobacco Control Alliance also found out that:

The report failed to mention that, even according to its own results, the majority of countries (six out of 11) compared over time experienced a decline in the volume of illicit trade.

Nowhere in the report is it mentioned that for the majority of countries (four out of seven) where the share of illicit consumption in total consumption of cigarettes increased between 2012 and 2013, there was no tax increase in 2013. Such result might have undermined the notion that tax increases drive increases in illicit trade, a key message of the report.

Finally, the report is full of errors and mistakes, which is rather surprising given the “commercial” quality and glossy graphical presentation of the results. For example, the report does not make any distinction between smoking incidence and smoking prevalence, even though these are two very different concepts: prevalence is the proportion of a population that smokes, while incidence measures how many people per year begin to smoke.

It also confuses “sales” and “consumption,” two fundamental concepts on which the calculations are based. In short, as was true for the prior Asia-11 Report, the reliance on potentially biased data, combined with the lack of transparency about methods employed, results in a study whose estimates are of questionable value. We would caution any stakeholders against relying on this report when assessing the trade in illicit cigarettes in their country or in the region.

Mighty’s rival should be reminded that it is violating not only laws made by Congress (Republic Act [RA] 9211 and its interagency committee, implementing regulations and RA 7394 on unfair competition and deception), memoranda between government agencies and Article 5.3 of the WHO-Framework Convention on Tobacco Control (WHO-FCTC).

The country is a signatory to this government noninterference convention in 2004.

In essence, the WHO-FCTC recognizes that tobacco industry interference poses the single greatest threat to tobacco control. It has been documented that the big ones (multinational) in the tobacco industry have used self-serving strategies to subvert, hinder and prevent tobacco-control efforts at the start of the illicit trade campaign.

Civil society groups warn the public about the clever but deceptive proposal of tobacco companies to have a Minimum Cigarette Price (MCP) whose benefits accrue solely to them. Instead of a minimum price, the civil society groups argue that increasing the tobacco tax rate is most effective in deterring smoking and increasing government revenue.

The proposed MCP prohibits the sale of cigarettes below Php 44.00/pack with the supposed intention of preventing the youth from smoking.

However, Jose Endrinal, co-convener of the Youth for Sin Tax, explained that the MCP proposal is founded on cherry-picked information that deliberately overshadows the success of the Sin Tax Law to his fellow youth. “It’s a wonder why MCP proponents tag the Sin Tax Law as a failure. The same SWS survey they are using actually points to a reduction of smoking prevalence of the youth from 35% to 18%,” Endrinal said.

Moreover, the coalition explains that the bill is disguising itself as an anti-smoking measure but is in fact an anti-competition strategy. As the MCP settles at the price that is favorable for Philip Morris Fortune Tobacco Corporation (PMFTC), it would act as a tool to exterminate its local competitors.

Dr. Tony Leachon, head of the Philippine College of Physician (PCP) Foundation expressed his disappointment: “Why are they using the language of public health? Unlike what they imply, their objective has nothing to do with youth smoking. In fact it will result in even bigger profits for PMFTC, the company that produces the most widespread and most popular cigarettes currently consumed by the youth in the country.”

Dr. Leachon added that the increased tobacco profits could be used for activities such as amplified advertising to the youth that would then counter several tobacco control efforts.

Action for Economic Reforms’ Senior Economist Jo-Ann Diosana said: “We should not let the companies keep the profit. Make the tax PHP 44 per pack instead; that way, the gain from the tax goes to the public, unlike a minimum price wherein the gain goes to the tobacco company.” At present, the tax rate is PHP 21 for a pack cigarettes with a net retail price of PHP11.50 and below and PHP 28 for a pack of cigarettes with a net retail price above PHP11.50.

Diosana also noted that whereas the MCP will result to an estimated Php1.5 billion increase in VAT, increasing the excise taxes to PHP 44 quadruples the amount, which in turn can be channeled to finance public goods, particularly for health.

“We should not allow ourselves to be used as an instrument in their tobacco wars. Cheap cigarette prices can be solved not through favoring any company that creates the product that we are all against,” Dr. Maricar Limpin of FCTC Alliance Philippines (FCAP) explained.

Lastly, New Vois Association of the Philippines (NVAP) head Engineer Emer Rojas added that the proposal would only increase enforcement costs. “It is better to focus on enforcing compliance of the Sin Tax and Graphic Health Warnings laws”, he said.

The provincial hospitals of Leyte before typhoon Yolanda struck the area in November 2013 had started drawing attention for their scheme to hike the pay of their physicians and staff despite the impediments. The pay of an obstetrician-gynecologist, for example, stood to rise for August 2013 by P166,000 at the lowest, or by more than P215,000 at the highest — representing her combined share from pooled monies generated through a local incentive scheme.

On the average, the Leyte physicians took home for August of 2013 an additional pay ranging from P106,000 to more than P161,000. That’s on top of their average statutory pay for the same month, including bonuses and allowances, of about P40,000.

The result was improved health care for the province. The number of full-time physicians attending to patients at the Leyte Provincial Hospital had doubled to 19 by 2012, with more doctors applying for a job. Service has tended to improve as doctors vie for patients and work to keep them pleased — the miracle of tying pay to performance.

How did the capitol consistently raise that much money? A team organized by the Action for Economic Reforms flew to Tacloban to look into the practice — to know what Leyte did, how it did it, and more. Highlights and how-to hints follow.

Provinces (and cities) may raise incentive funds from at least two potential sources: able patients and PhilHealth. Able patients are those who can afford to pay for hospital services. They are your non-indigents. PhilHealth is shorthand for Philippine Health Insurance Corporation, which carries the mandate of providing health insurance coverage to all Filipinos. With a budget of over P35 billion last year, it’s a rich source of wealth for health if you know how to tap it.

To lay the scheme using these fund sources, the will and the way must be in place. Mustering the will is your department. This how-to hopes to help in finding the way. It draws heavily from the experience of Leyte in implementing its hospital incentive scheme.

So, you would need to:

• Charge (or, if warranted, adjust rates of) a fee for service.

• Pool cash donations.

• Pool PhilHealth payments for professional fees.

For each of these, you have to put in place an agreed distribution formula that bears in mind the virtues of participation and makes everybody happy.

FEE FOR SERVICE
This is a beaten path among provinces as a way of recovering cost, whose success varies across jurisdictions. As local holder of the power of the purse, the Sanggunian enacts an ordinance imposing fees (or adjusting current charges) for certain hospital services rendered, prescribing how much and to whom the fees apply, and providing how much of the proceeds goes to what and to whom.

You would like to ring-fence the hospital account for your incentives. Otherwise, the income goes straight by default to the general fund and gets spent following the usual budgetary process. You would need therefore to lay the collections together, “fence” them off, and keep any other from spending them on anything else.

How? By creating through the same ordinance, as the law allows, a special account in the general fund.

But bear in mind the hurdles. By law, you are not allowed to hike the pay of any of your official or employee higher than the maximum salary rate fixed for her position. Another law puts a limit to what local governments can spend for personal services in the form of salaries, premiums, bonuses, benefits, and the like.

CASH DONATIONS
Fortunately, the legal impediments do not cover cash donations. By definition, private donations to local governments can only be used for the purpose for which these were made. The Leyte experience has impressively demonstrated that cash donations from non-indigent patients form a viable source of hospital income to fund the incentive scheme. In 2013, these amounted to a total of P3.7 million.

Again, you would need the Sanggunian to enact an ordinance authorizing the collection of cash donations from non-indigent patients, providing for the creation of a special account (as Leyte did) or a trust fund (as the Commission on Audit requires) for these donations, and prescribing the manner of distribution of the proceeds, among other things.

PHILHEALTH PAYMENTS
PhilHealth is another source of funds to tap for the hospital incentive scheme. What you would like to look into is its reimbursement facility. The PhilHealth law says: “All payments for professional services rendered by salaried public providers shall be allowed to be retained by the health facility in which services are rendered and be pooled and distributed among health personnel.”

This is ring-fencing the payments courtesy of the law. To use them for the hospital incentive scheme, the province would only need to attend to some key tasks, such as the following:

• Ensure that the hospital and its physicians are PhilHealth-accredited. It takes some steps to get accredited. Knowing these in detail would require you to pay your PhilHealth local health insurance office a visit.

• Create through an executive order an ad hoc hospital committee mandated to propose guidelines for the pooling and distribution of PhilHealth professional fees.

• Enact an ordinance prescribing the approved guidelines and creating a trust fund for this purpose. This task seeks to apply sustainability to the pooling and distribution scheme.

Leyte’s is a story of success that’s worth the telling. Your own is surely worth the wait.

Mario M. Galang is a senior fellow of Action for Economic Reforms and a development and governance specialist.

Has the global tobacco advocacy been manipulated by Big Tobacco’s lobbying agenda? Where the tobacco lobby is concerned, it would be naive to think there’s smoke without fire.

One of the dirtier secrets of the international tax world — and yes, the bar is quite high — is the role of tobacco companies in seeking to manipulate policies that might reduce the number of people dying because they consume tobacco.

The main angle taken by the lobby has been to direct attention toward “illicit” tobacco, where customs duties and tax may not have been paid.

Now I care a lot about tax, but even I can see that whether tobacco was taxed before being consumed is barely even a second-order issue, when compared to the question of whether people are dying because of their consumption — which they are, and will continue to do, in their millions.

But the thematic focus of the World Health Organization’s (WHO) World No Tobacco Day 2015 is not directly on stopping tobacco consumption, as the name might suggest. Instead it turns out to be: “Stop the illicit trade in tobacco products.”

HUMAN IMPACT OF TOBACCO
Tobacco kills. And overwhelmingly, it kills poorer rather than richer people; and as time goes by, it kills people in poorer rather than richer countries.

In a rich country like the United States, researcher Prabhat Jha and colleagues find that: “The rate of death from any cause among current smokers was about three times that among those who had never smoked… The probability of surviving from 25 to 79 years of age was about twice as great in those who had never smoked as in current smokers (70% vs 38% among women and 61% vs 26% among men). Life expectancy was shortened by more than 10 years among the current smokers, as compared with those who had never smoked.”

But it is in lower-income countries where most smokers and tobacco consumers are, and will be. Consequently, it is in lower-income countries where most tobacco-related deaths happen and will happen: Over four million a year, more than TB, malaria and HIV/AIDS combined (data from Tobacco Atlas).

And the costs are likely only to rise, since the number of daily smokers continues to grow, from 721 million in 1980 to 967 million in 2012 (despite a drop in smoking prevalence).

So call it a billion daily smokers. That’s a big market, for something expensive and addictive.

THE TOBACCO LOBBY
The most visible activity of the tobacco lobby is that carried out by the International Tax and Investment Center (ITIC). The Financial Times covered the ITIC in October, under the headline “Tobacco lobby aims to derail WHO in tax increases.” It reported:

“A tobacco industry-funded lobby group will attempt to derail a World Health Organization summit aimed at agreeing increased taxes on smoking, according to leaked documents seen by the Financial Times.

“The International Tax and Investment Center, which is sponsored by all four major tobacco groups, will meet on the eve of the WHO’s global summit on tobacco policy in Moscow later this month in a bid to head off unwanted duty increases.”

The WHO sees the ITIC’s actions as so extreme that it has called for governments not even to engage with them. With such a position taken by a major United Nations (UN) body, the ITIC cannot be seen as legitimate in its claim to provide objective analysis to governments around the world.

THE INTERNATIONAL TAX ARENA
But within the tax sphere, many leading actors work with the ITIC.

As the Observer highlighted, the former permanent secretary of HM Revenue and Customs (head of the United Kingdom tax authority) became a director of ITIC just a year after stepping down. His justification, given to the paper, was that he is not an executive director and is unpaid; and that around 50 other “leading figures in taxation” are involved in the same way.

The ITIC’s “senior advisors” list is certainly an impressive one from the tax perspective, including a number of respected researchers and tax officials, with Jeffrey Owens — former head of the Organization for Economic Cooperation and Development (OECD) tax arm, the Centre for Tax Policy and Administration — singled out as a “Distinguished Fellow.”

Similarly, it’s unclear why non-tobacco multinationals like Goldman Sachs or ExxonMobil would want to associate themselves with this lobby, not to mention the professional services firms which include the big four accounting firms, and lawyers such as Pinsent Masons.

The ITIC explains it this way: “Sponsors recognize the tremendous value added by ITIC in the countries in which they operate, through the promotion of an environment that welcomes business.”

But commercial organizations of this size can surely promote such an environment without the taint of tobacco lobbying.

There could hardly be a clearer message for the sponsors and fellows to find an alternative to the ITIC, than for a major UN organization like the WHO actively warning governments not even to engage with it.

THE ‘ILLICIT’ TOBACCO ARGUMENT
What about the substantive basis for the arguments made by the ITIC?

The main claim made is that taxing tobacco creates incentives for illegal tobacco trade. This in turn reduces the revenue benefits of the tax, and also encourages criminal activity:

“This growing and dangerous problem is not just a tax issue — beyond substantial government revenue losses, the impact of illegal trade constrains economic development and raises barriers and costs for international trade,” said Daniel Witt, president of ITIC. “It also poses significant health risks, and presents numerous challenges for law enforcement, from violations of intellectual property rights to money laundering and organized crime activity.”

Arguments along these lines have been used in seeking to influence tax policy — that is, against higher tobacco taxes — from Ukraine to the Philippines, with critics arguing that the estimates provided tend to systematically overstate the case.

A recent study published in the British Medical Journal’s Tobacco Control, for example, looks at estimates produced for Hong Kong, and finds that: “The industry-funded estimate was inflated by 133 — 337% of the probable true value.”

As Bill Savedoff highlights in his Center for Global Development podcast, the broader evidence simply does not support the claim that higher tobacco taxes lead to illicit tobacco trade. Significant tax rises over the last 10-15 years have not been associated with any increase in the proportion of tobacco that is illicit (about 9%-11%). Other factors like enforcement and effective tax administration seem much more important.

In addition, as Savedoff puts it: “What’s particularly ironic about this argument from the tobacco companies is that they are the ones that have been responsible for most smuggling… Essentially, to get the magnitude of smuggling that you would need, to have an impact on the tobacco tax, or consumption, you have to have the complicity, if not the actual responsibility, of the tobacco companies themselves.”

Also, Michal Stoklosa of the American Cancer Society in a Tobacco Atlas paper, argues that “most importantly, it is clear that the measures that aim at reducing demand for cigarettes more generally are crucial in reducing the illicit trade problem.”

There is no doubt that illicit trade in tobacco exists; and nobody argues it’s a good thing. But it’s clearly not the big issue about tobacco consumption — that would be, er, tobacco consumption.

Illicitness, in this case, is not associated with any greater health damage. And overall tax revenue losses do not seem to result from well-administered rises in tobacco taxation that cuts consumption, because illicit trade has tended not to increase. (As an aside: unlike some taxes, revenue is not the prime reason for “sin” taxes — in this case the aim is, explicitly, to reduce the tax base and eventually the revenues, by curtailing damaging behavior.)

Should the WHO then use its biggest awareness-raising moment of the year to focus on illicit trade? From the outside, it seems clear that “No Tobacco” would have found a stronger expression in a theme that sought to reduce all tobacco consumption.

I don’t mean to suggest anything illicit in the WHO’s adoption of this theme. Clearly they have taken a very direct stance against the well-funded lobbying of the ITIC. But if we ask whether this theme would have been chosen, absent ITIC lobbying over recent years, it seems likely the answer is no. I hope the WTO can stick to the mission of the day — that is, of No Tobacco.

For now, chalk one up for the ITIC.

But then ask: Of the many individuals — the chairmen, co-chairmen and directors — and the professional services firms and non-tobacco multinationals working with the ITIC, how many would see this as a win?

Do they each mean to lend their names and reputation to an organization that has consistently lobbied individual governments, especially in developing countries, and international organizations, against tax measures that are proven to reduce tobacco consumption, and all the health damage and needless death that results?

If not — and I very much hope not — then World No Tobacco Day 2015 seems like a fine time to step away from the ITIC.

Alex Cobham is an Oxford-based economist who has collaborated with Action for Economic Reforms in advancing tax reforms. He is the director of research of the Tax Justice Network.

This article was first posted on BusinessWorld last June 28, 2015.

]]>http://aer.ph/marching-to-big-tobaccos-tune/feed/06475Travails of the BBL: Shades of what sin tax law went throughhttp://aer.ph/travails-of-the-bbl-shades-of-what-sin-tax-law-went-through/
http://aer.ph/travails-of-the-bbl-shades-of-what-sin-tax-law-went-through/#respondThu, 04 Jun 2015 03:58:24 +0000http://aer.ph/?p=6473

What do the Bangsamoro Basic Law (BBL) and the sin tax law have in common?

To begin with, the process to put in place good rules takes so long. The new sin tax law (Republic Act No. 10351) has corrected the fundamental weaknesses of the old law. And it took 15 years to obtain the key reforms.

The old law was passed in 1997 as part of the Comprehensive Tax Reform Program. The new law was enacted in 2012. It consists of major reforms, namely the imposition of much higher tax rates, the adoption of a unitary tax for tobacco products, the removal of the price classification freeze which fixed tax rates of legacy brands for cigarettes based on their 1996 prices, the automatic adjustment of tax rates to inflation, and the earmarking of the bulk of incremental revenues for universal health care.

In the case of BBL, it seeks to supplant the failed Autonomous Region in Muslim Mindanao (ARMM), which became a law in 2001. Although the ARMM had the good intention of enabling Moro self-governance, it turned out to be insufficient in overcoming the many political and economic problems that have historically plagued the Bangsamoro. The BBL thus seeks to strengthen the institutions for the effective governance of the Bangsamoro, in terms of a participatory and transparent political structure, greater fiscal autonomy, better control and management of natural resources, and a more equitable sharing of wealth between the national government and the autonomous region.

But whether a BBL that contains the above features will pass remains to be seen. What needs to be stressed is to have a law that incorporates the essential reforms. We can expect a BBL to pass, but it should not be one that incapacitates self-governance.

Even the House bill that is up for second reading remains controversial from the perspective of the Bangsamoro. In a story written by Carolyn Arguillas for MindaNews, Mohagher Iqbal, the chief peace negotiator for the Moro Islamic Liberation Front, said that the House bill is “50% okay qualitatively.”

A most contentious issue pertains to the dilution of Bangsamoro jurisdiction over natural resources. The Comprehensive Agreement on the Bangsamoro provides for a joint exercise of power between the national government and the Bangsamoro entity in granting rights, privileges and concessions over the exploration, development and use of fossil fuels and uranium. The House bill however discards this and replaces it with a provision that excludes the Bangsamoro from having the authority, power and right to the control and supervision over the exploration, use, development and protection of strategic minerals such as uranium, petroleum and other fossil fuels, mineral oils, and all sources of potential energy. The consuelo de bobo is the Bangsamoro will be consulted on this matter.

In this light, the experience from the passage of the sin tax law in 2012 offers some insights into the BBL advocacy.

It is interesting and amusing that the most vociferous opponents of the BBL in Congress are the same legislators who did not support the sin tax reforms.

In the Senate, those who oppose a genuine BBL or those who want to cripple the BBL include Alan Peter Cayetano, Bongbong Marcos, Francis Escudero, Ralph Recto, and Tito Sotto. They are the same senators who did not want the sin tax reforms passed in 2012.

The sin tax was ratified in the Senate by a margin of one vote, which shocked its main sponsor, Franklin Drilon. Marcos, Escudero, Recto and Sotto were among the nine senators who rejected the reforms. Alan Peter Cayetano was conspicuously absent during the vote. This was surprising, considering that his sister, Senator Pia Cayetano, was a champion of the sin tax reform.

Part of the tactics of the tobacco industry was to dissuade some senators from voting. Four senators did not show up for the ratification: Alan Peter Cayetano, TG Guingona, Manuel Villar, and Loren Legarda. Thus, the vote in the Senate was won by a whisker.

To be sure, some senators who were supportive of the sin tax are against the BBL on constitutional grounds. I can think of Miriam Defensor Santiago. But then Senator Santiago has always been different.

Nonetheless, one has to distinguish between those who oppose the BBL on strictly legal issues and those who use any excuse, including the legal ones, to scuttle the BBL as a way of pandering to hysteria, bigotry, or deep anti-Moro biases.

Arguably, a most important lesson that the BBL advocates can learn from the sin tax is to be clear about the bottom line. What are the essential features that have to be retained, as distinguished from elements that can be a subject of a just compromise?

In 1997, the objective of the sin tax reform was to shift the tobacco excise tax from an ad valorem tax to a specific tax. Under the system of the ad valorem tax, a tobacco manufacturer could artificially depress the gate price of the product so it could be taxed less. The system abetted tax evasion. The shift to the specific tax (which is a fixed amount based on unit) was successful.

But the law likewise contained a killer amendment, which was the price classification freeze (resulting in very low tax rates for the legacy brands). In addition, Congress did not include a mechanism to adjust the fixed tax rate to inflation. Thus, the reform went to naught.

We hope the BBL will not suffer the same fate that happened in the first attempt to reform the sin tax.

]]>http://aer.ph/travails-of-the-bbl-shades-of-what-sin-tax-law-went-through/feed/06473Complexities at the intersection of tobacco control and trade liberalisation: evidence from Southeast Asiahttp://aer.ph/complexities-at-the-intersection-of-tobacco-control-and-trade-liberalisation-evidence-from-southeast-asia/
http://aer.ph/complexities-at-the-intersection-of-tobacco-control-and-trade-liberalisation-evidence-from-southeast-asia/#respondMon, 01 Jun 2015 05:40:53 +0000http://aer.ph/?p=6467Abstract

For more than two decades, public health scholars and proponents have demonstrated concern about the negative effects of trade liberalisation on tobacco control policies. However, there is little theoretically-guided, empirical research across time and space that evaluates this relationship. Accordingly, we use one major region that has experienced rapid and significant recent liberalisation, Southeast Asia, and examine key tobacco control-relevant outcomes between 1999 and 2012. While we find a modest increase in regional trade in tobacco products in some countries, the effects on tobacco affordability and consumption are very mixed with no clear link to liberalisation. We argue that widespread penetration of the region by transnational tobacco firms is likely mitigating the effects of trade liberalisation. Notably, tobacco control policies have also generally improved across the region, part of which is likely the result of successful regional and global efforts by civil society, governments and intergovernmental organisations. The results suggest that scholars and public health proponents should move the focus away from narrow economic aspects of liberalisation toward specific issues that are more likely to affect tobacco control, such as intellectual property rights protections and investor–state dispute settlement.

Discussion and conclusions

The very mixed results above across key aspects of the trade and tobacco nexus suggest that there is no clear-cut link between trade liberalisation and a decline in tobacco control and/or an increase in tobacco consumption in Southeast Asia. One popular proposed solution to mitigating trade liberalisation’s effects on tobacco control is a total exclusion of tobacco from future economic agreements. While there are some obvious benefits to this proposal, it is not clear that it is politically viable or that it will have particularly large positive effects for public health.

In terms of tobacco exclusion’s political viability, the broader task of affecting trade negotiations successfully is challenging, not to mention the additional burdens of returning to hundreds of previously negotiated economic agreements.61 In each case, proponents would have to convince the appropriate political actors that a policy of tobacco exclusion is necessary and appropriate. These actors almost surely include governments’ trade officials and negotiators, but probably also legislators and/or other major political actors. Many of these actors will have strong preferences and/or vested interests that preclude supporting such initiatives. Moreover, in a consensus-based context such as ASEAN, such efforts would have to occur successfully across all members.62 A high-ranking trade official in the Philippines noted that no key trade or finance officials in ASEAN countries are openly supportive of this proposal (interview, 8 April 2013). With literally thousands of products and hundreds of discrete issues up for negotiation in most agreements, prospects for change of this nature are dim.

Tobacco exclusion may even be problematic in some circumstances by perpetuating market structures that serve strong pro-tobacco interests (eg, by preserving the market share of a particularly politically strong TTC). It is no mistake that in two major recent economic agreements, the Pacific Island Countries Trade Agreement (PICTA) and the South Africa–European Union Trade, Development and Cooperation Agreement, it was a major TTC operating in favourable domestic conditions pushing governments for an exclusion policy (personal communication with South African treasury official, 23 April 2013).

If one of the ultimate goals is to affect price positively (and thereby reduce consumption), tobacco excise taxes are typically a superior strategy to trade barriers such as tariffs because they are non-discriminatory, can be made specific to quantity or unit, and can even be designed to account for inflation and income growth.51 Tariffs as a tobacco control tool may have the perverse consequence of permitting domestic tobacco manufacturers to thrive, while having limited or no effect on price, affordability and/or consumption. While it is true that decreased competition generally leads to higher prices, it remains the prerogative of the domestic industry to set prices to optimise their goals. For example, a protected domestic firm or industry might set certain products at lower prices to encourage initiation of use and then raise prices only after solidifying its consumer base through the products’ profoundly addictive nature.63

Similarly, if one of tobacco control proponents’ ultimate goals is to counteract aggressive marketing by the tobacco industry, it might be more prudent to pursue FCTC-compliant bans on tobacco advertising, promotion and sponsorship. These bans do not discriminate between domestic and foreign products, but rather, address all tobacco products and thereby prevent domestic firms from taking advantage of a potentially privileged status in a domestic market.64,65 However, such bans might preserve market shares forcing firms to compete more aggressively on price.66

Without doubt, there remain enormous challenges at the economic policy–tobacco control nexus: the extant case study evidence cited above suggests strongly that there are very serious challenges to public health. But the public health community must identify better the precise causal mechanisms, and develop some viable and sophisticated solutions. Simply arguing the trade liberalisation is bad for tobacco control and that excluding the tobacco sector from economic agreements is the solution is a suboptimal strategy in terms of how it addresses the challenges and its likelihood for effective implementation. As all ASEAN countries negotiate the evolving Regional Comprehensive Economic Partnership with regional neighbours (Australia, China, India, Japan, Korea and New Zealand) and some ASEAN members consider their membership in the even more comprehensive Trans-Pacific Partnership (TPP), the impetus to find the most feasible and effective balance among health and economic commitments could not be larger. Public health proponents’ concern about the TPP appears founded as even a US Trade Representative proposal to include a safe harbour for tobacco control regulations is reportedly no longer under consideration (as of late 2013).67

Instead, the public health community must target efforts toward the largest, most pressing and potentially problematic substantive problems. For example, the Uruguay labelling and Australia plain packaging challenges demonstrate clearly that investor–state dispute settlement provisions in BITs pose genuine risks to tobacco control, not least of which because wealthy TTCs have the opportunity to bully small or even larger countries in the unpredictable setting of international arbitration. Similarly, the public health community must push negotiators firmly and unequivocally not to privilege the protection of intellectual property rights over governments’ moral and legal obligations to regulate for the broader public health. Economic agreements are not likely going away any time in the near or medium term, so the public health community needs to be better prepared to make appropriate and effective requests and demands.